Page images
PDF
EPUB

land in completely worthless desert or swamp promotions
will realize that they have been gypped.

Keith Barnard, former president of the Chicago Better
Business Bureau, says that when this happens "it will be
the great national scandal of the 1960's." I agree. But I
would also like to go a little further.

I submit to you that the bigger problem, in terms of its total implications, is what is going to happen to the tens of thousands of elderly couples who do move from the cities and suburbs of the North to partially developed "retirement cities" in undeveloped counties of Florida and the Southwest. Without industries to provide them jobs to eke out their social security and pension checks, without adequate municipal services, hospitals, or adequate funds for welfare, what is to become of them?

What of the whole concept of herding together large numbers of elderly persons, an idea now being frowned upon by many leading gerontologists, as you know.

We don't know the answers to these questions. But the questions are starting to loom ever larger. To me, anyway, they seem frightening. This is a national problem, and it

should be handled on a national basis by Federal regulation. Industry witnesses, in letters and in testimony, made it quite clear that entire communities have already been built through mail order sales. But they also made the point that such efforts required adequate financial resources and years of careful preparation." The subcommittee is concerned, not about such commendable projects, but about those who sell land with the vague suggestion that it can ultimately become part of a bustling community when, in fact, major obstacles have been put in the pathway of such development.

Only local action can effectively cope with the local problems. But how is a buyer to know whether such action has been taken, unless the seller is honest enough to tell him or unless some form of legal standard requires the seller to do so?

FINDING No. 5

Industrywide self-regulation is a commendable goal, but it is slow

in coming

Soon after the first news reports about mail-order land sale problems began to appear in 1961 and 1962, many subdividers and developers began to promulgate codes of ethics for private application by members. Others spoke of more extensive self-regulatory efforts.

The National Better Business Bureau, which also distributes a code of ethics, attempted to stir more direct action.

Mr. John R. Hoffman, testifying for the NBBB at the hearing, described the results: 30

Senator WILLIAMS. Thank you very much, Mr. Hoffman.
Did you sponsor a meeting of the industry last year?

Mr. HOFFMAN. Yes; we had a meeting last December in
Scottsdale, Ariz., near Phoenix wherein the bulk of the

industry was invited to attend the meeting to implement a · P. 285, op. cit.

program of self-regulation. We proposed a 10-point program
to the entire industry, an example of which I have here,
which we would have implemented.

Regrettably that program has not been put into effect.

Senator Williams. You wouldn't have been able to gather or to bring to the meeting the worst of these operators, would you? They wouldn't come out, would they?

Mr. HOFFMAN. We had nearly a hundred representatives there representing both the good and the bad. Some I would characterize as highly promotional operators. Others were definitely responsible developers who had a community to show. They were, I am afraid, in the minority of that group.

Senator WILLIAMS. What were the lines of discussion in this industry group?

Mr. Hoffman. We presented, as I say, this 10-point program of what we proposed to do about the problem. We had many questions and an open meeting after our various presentations and answered many questions.

There seemed to be some enthusiasm among a number of
the industry people there. And then there was a closed
industry meeting thereafter wherein the question of raising
of funds to implement a program was discussed. It was
decided that an effort would be made and we were given as-
surances that the funds would be raised to implement the
program, but this has not happened.

Senator Williams. If we wait for effective self-regulation
I imagine we will be waiting a long, long time, won't we?

Mr. HOFFMAN. It is conspicuous by its absence at the present time. Statewide associations are at work. A representative for the League of Arizona Developers gave a summary of the league's progress thus far: 31

Senator WILLIAMS. Could you describe the League of
Arizona Developers, what the membership is, and what part
of the total industry you represent?

Mr. BERTOCH. In dollar figures, Senator?
Senator WILLIAMS. No, developers.

Mr. BERTOCH. We have at this time approximately 25
active members. We have five or six associate members. I
don't have the list of the membership at this time. I could
prepare one and have it forwarded to the committee. This is
a group, again, which is a young group, but we think we have
some of the people in industry who are interested in this
movement. We feel that we are going to increase our
membership this year and the following years, and become
a stronger voice.

Senator Williams. What is your estimate of the number of developers that there are in Arizona, those eligible for your membership?

Mr. BERTOCH. That almost requires a definition of "de

veloper," Senator. 11 P. 84, op. cit.

Senator WILLIAMS. The subdivider. Is that another way of expressing it?

Mr. BERTOCH. Our group has subdividers selling Arizona property to Arizona people in Arizona, and it also has people who have Arizona property who are marketing in other States. So when it comes to Arizona subdividers, as such, marketing in Arizona, we have a representative group of that level of operation. When it comes to those who are marketing Arizona property in other areas, we then have a representative group there. We do not have an organization at this time that represents all the people in the business.

FINDING No. 6

There is some discontent within the industry about the complexity

of some State regulations and the wide differences that exist from State to State

Mr. Carl Bertoch, chairman of the Rules and Regulation Committee of the League of Arizona Developers, gave this description of the situation: 32

Some of us in the industry are beginning to feel that no longer are we in an area without sufficient regulation as it may have appeared here a year and a half ago, but we are now rapidly becoming overburdened by a prolixity of regulations

which lack uniformity and represent divergent philosophies. Though not asking for Federal regulation, Mr. Bertoch was expressing a complaint heard frequently from developers. A similar, but more detailed, comment was given in a statement submitted to the subcommittee by James H. R. Cromwell, chairman of the board, American Realty & Petroleum Corp., which is selling land at three large development projects, two in Florida and one in New Mexico. Mr. Cromwell stated : 33

Instead of one Federal registration, as is proper with interstate commerce, we have separate registrations in each of the States with increasingly high legal and other costs. Instead of one inspection of the property, to this point we have had to bring various State inspectors on 15 separate trips from the various States. We have had to pay over $10,000 in expenses for these trips, over $5,000 just in the many States' filing fees and well over $50,000 in legal fees for various lawyers in the many States to handle the complicated State registrations for us. All of this on one property alone. These are certainly unnecessary costs.

Gentlemen, I would think interstate land sales are truly interstate commerce, to be regulated only at the Federal leves.

But let us remember that the present State laws are doing an excellent job of policing, and additional Federal legislation on top of the present State laws would be unnecessary and wasteful. However, I do believe that one Federal agency to

replace the presently existing State agencies would be far * P. 77, op. cit. A P. 346, op. cit.

more preferable and far more economical, for Government,
for the consumer, and for the businessmen. If it is possible to
replace the separate State regulation with one overall,
interstate Federal law, then we are all for it. To leave as is
the present individual State laws and add an additional
Federal bureau would be, we feel, unnecessary.

RECOMMENDATIONS

RECOMMENDATION No. 1

The subcommittee believes Federal regulation of an essentially

interstate problem is necessary. Such regulation would take into account the efforts of the States, and would not supplant, but complement, existing State legislation

A number of approaches to the solution of this problem have been suggested. Among them are strengthened postal fraud statutes (see sec. V) broadening the advertising provisions of the Federal Trade Act, or requiring registration of interstate land sales with the Securities and Exchange Commission.

Your subcommittee believes that the most practical and effective method of Federal regulation would be to require a Federal "full disclosure" statute administered by the Securities and Exchange Commission.

1. The subcommittee recommends legislation which would require registration of the sales of land in a subdivision with the SEC whenever the mails or instrumentalities of interstate commerce are used to sell the land or, in appropriate cases, to offer or advertise the land.-Such a bill should provide minimally that registration would be accomplished by filing an application including information as to (a) the topography of the subdivision and existing streets and roads, water and general condition of the development, (6) condition of the title, and (c) condition of sewage disposal facilities and existing public utilities.

Additionally, if the subdivision were mortgaged or otherwise subject to a "blanket encumbrance," the registration statement should show that a purchaser could obtain title free and clear of this encumbrance or that his investment would be protected by an escrow arrangement, a trust agreement, or a bond.

Based on the information in the registration application and appropriate investigation, the SEC would prepare a public report on the development. Such a report would have to be shown to a prospective buyer prior to entering any sales agreement.

In addition, individual salesmen of such subdivision would be required to register with SEC.

It should be emphasized that such a law would apply only to the sale of undeveloped land in interstate commerce. The sale of improved land on which there is a dwelling would be exempted from its provisions.

Your subcommittee believes that the SEC is the appropriate agency to administer such a law for several reasons. The procedure for the registration of proposed land sales, and the preparation of a public report is analogous to regulations now applied to offerings of new securities. Also the SEC has the regional offices and the trained

a

personnel to administer the provisions of the bill, albeit with some expansion. In addition, such a law would complement and encourage appropriate State action. If compliance with an adequate State "full disclosure" law were deemed to meet SEC standards, a developer would merely have to file duplicate copies of appropriate State registration applications with the SEC. În this manner, the SEC will administer the law in cooperation with the various States. However, the major responsibility for its administration should remain with the SEC until the States enact adequate legislation themselves. Federal legislation would merely serve, as it properly. should, to fill the gap now, left by the absence of proper legislation in every State.

2. The subcommittee also believes that congressional attention should be given the following suggestion by Herbert Wenig, assistant attorney general of California._I suggest a statute which would make it å crime to use interstate commerce to sell out-of-State land in a State contrary to the laws of that State. One precedent is the statute which makes it a Federal offense to transport liquor into a State contrary to State law. Such a statute would protect States like California which have adequate laws to protect land purchasers, but which have great difficulties in enforcing these laws against the out-of-State seller. Injunctive relief in the Federal courts should be made available either in the district where the seller resides, or where the sales are taking place. 35

* The subcommittee has already had preliminary discussions with the National Conference of Com. missioners on Uniform State Laws in order to determine whether State and potential Federal regulatory action can be coordinated to avoid needless duplication and confusion. u P. 27, op. cit.

(Additional commentary by a representative of the Department of Justice on p. 199.)

« PreviousContinue »